Wednesday, January 6

Value ethics for better business outcomes

Introduction

Business
value ethics has come to prominence in modernity due to the
systemic collapses in corporate responsibility, particularly in the financial
services and banking sectors. By ethics I mean principles or codes of conduct that govern business
transactions.

Ethics relates to both organisations and all involved
or employed inclusive of the regulators charged with responsibility for the
systems integrity What I propose is to examine past philosophers ideas and what can be applied today.

Aristotle’s
beautiful city concepts

Stepping
back in time to the great philosopher Aristotle we find he contends a
city-state should be fashioned on aristocratic nobility and justice principles for
all and not as a business enterprise whose sole purpose is to maximize wealth.
Nor was it to be place purely to promote liberty and equality, but rather he
argued for a constitution based upon on noble actions and in the virtuous sharing
in the community. His ideas overlaid a pragmatic and practical application, by
arguing a city’s control is best represented by a constitution which gives a majority
rule or power to the “middle class” as one suited to equitably represent both the
rich and the poor. Justice and education were to be provided to all equally
regardless of wealth or social standing.

Hence
although Aristotle asserted business could best be transacted by means of money
which he approved to procure goods or services, he also maintained it had become
the catalyst as an accumulated
corruptible means to obtain one’s fortunes. Aristotle was also very interested
in both underlying principles for justice and the importance of aestheticism in
the building environment. He contended the architecture and design of a city
influenced our wellbeing; appearance as well as design brings order and beauty that
conveys happiness and a welcoming feeling to inhabitants and strangers alike.

Such
ideas remain just as relevant for us to day as there were then. For Aristotle was a philosopher that associated happiness with the habit of making
virtuous choices so that by embracing such a disposition he asserted we build our
moral compass to enable us walk a virtuous path through the moral dilemma that
life presents to us. Hence as time goes on it is our underlying virtuous disposition,
strengthened by prior choices, ensures superior outcomes. But the question
arises as to we know what are the right choices. In this respect Aristotle
talks about the middle course, as in the middle ground, for instance as between
profligacy and insensibility as therein lies our self-discipline. Aristotle ideas
on justice are also rooted in virtue and then in its virtuous application.

The counter argument of course is that not all people are inclined to
virtue, nor do they find happiness in the contemplative intellectual pursuit of
virtuous aims. Rather, by way of example we have the counter views of the materialists
and so on. Hence Aristotle, like all philosophers and philosophy in general has
its limitations and one will always be able to demonstrate a fatal flaw one way
or another.

Notwithstanding
his views have proved to be a reliable sage as money and the growth in business
has bedevilled humanity in whatever form it has been adopted be it capitalism,
socialism, communism or a mixture as is evident in modern day China.

Advancements
in science and industrialisation.

But
given the vast advancements in science from around 1500 AD we see the effect of
new discoveries on business and trade. Combined with the puritan work ethic
from the Reformation business expansion began to be associated with virtue, despite
the fact that the 'mercantilist' system that arose was in effect highly
unethical.

For Oliver Cromwell had enacted laws to bolster the
'mercantilist' system to give preference to the British enterprise and shipping
companies. Although historically we have many monetary empires dating back to
the fall of the Roman Empire none rivalled the Industrial Revolution in England
from 1740- 1780, - a logical melting pot given the recently discovered
Newtonian mechanistic world - as suggested by John Gribbin in ‘Science a
History 1543- 2001’

Hence the industrial revolution became the catalyst
for western world industrialization, but it was a two edged sword in terms of
benefits. Whilst inventiveness, division of labour and productivity supported
vastly improved living standards capable of supporting a much bigger population
it was at the expense of massive exploitation of people and land- to become as
many would argue the genesis of our current ecological disaster.

Moral ethicist Adam Smith

During the Victorian era philosopher and moral
ethicist Adam Smith published in 1776 his influential classical economic work
entitled ‘Wealth of Nations’ to criticize the 'mercantilist' system. Smith
articulated the view that business and money was the invisible hand of free
markets which will produce a satisfactory price return for land, labour and
capital because the self interest in any free market benefits the whole of
society as competition keeps prices low. The advantage of free trading has
always benefited nations and was evident in that of the Australian
aborigines. Like indigenous groups elsewhere, they traded ceremonial artefacts,
grinding stones, sea shells, ochre's, shields, axe heads, spears and even 'water
rights' along the permanent waterways that marked trade routes. This enabled a
"United Nations" approach to trade as scarce resources in one region
were exchanged for another's in the same manner as Adam Smith suggested trading
between nations having different natural resources yielded optimum outcomes.
The trouble is, of course, such free trade agreements are reliant on the trust
and goodwill of the respective negotiating parties – something that is prone to
be absent in secret deals where each party vies to outwit the other. The word “free trade” touted by politicians
when entering into these agreements is misleading since invariably it involves
the conferring of rights or preferences only disclosed later to the
public.

Smith was acutely aware any concentration in power
would distort a free market and pointed out Merchants wielded monopolistic
power afforded them as a consequence of bans on foreign competition.
Mercantilism was also associated with a monetary system which used exported bullion
to pay for imports- mainly from Asia- which reduced money supply to exert
downward pressure on prices and economic activity at the expense of
impoverished workers.

Mercantilism
also adversely affected the colonies which were forced to use English ships,
pay duties and only trade in commodities whose prices were set by the British
Empire to effectively create an underclass of colonial citizens - a significant
factor that led to world war and eventual American independence.

Another aspect
to growing industrialisation was the emergence of
"consumerism" as consequence of the ease of transportation and communication
of globally produced goods and services at cheaper prices with more choices to
those who have the means and desire. Aristotle's ideas that our desires can override
ideals of virtue was proving to be a real issue.

Equally Christianity struggled to come to grips
with this new found materialistic world with a wide disparity in opinion. What
emerged were the extremes of religious fundamentalism erroneously linking salvation
to increased material wealth.

Consumerism

Whilst we associate 'consumerism" as a modern
phenomenon the underlying human condition to gravitate to materialism seems
unchanged - given the opportunity a desire inevitably arises to accumulate
material wealth. As the bible says "There is nothing new under the
sun"; the story of Solomon reminds us there is nothing new about how our
desire for material wealth can be all consuming. Solomon was both wise and
ruled as king during a period of unrivalled prosperity, - as a great trader who
secured from King Hiram of Phoenicia the materials for the magnificent temple.
But towards the end of his reign he succumbed to the great trappings of immense
wealth and worshipped idols.

The point to all of this is that all of us, even those with the Wisdom of Solomon,
may not be immune to an excessive desire for material goods. It also serves as
a sobering reminder that what we may regard as basic human material needs can
be the equivalent of rampant consumerism to a struggling African family or even
those homeless within our shores.
This applies also applies to nations just as it does to individuals and the
amount we are willing to pledges in aid. Going against the trend it is remarkable
that a tiny country such as Ireland whose generosity as a percentage of GDP puts
other countries, including Australia to shame.

Although you cannot effectively legislate morality or
orchestrate more even social outcomes you can have regulations to ensure free
markets operate in a regulatory environment which specify basic human rights.
We can make provision for safety nets and ensure ethical principles or codes
are operational for both corporations and citizens alike. The irony is
once nations become industrialized, more equal societies almost always do
much better in terms of health, well-being and social
cohesion and that it is the large income inequalities which have the capacity
to destroy the social fabric and the quality of life for everyone.

Much of this inequality is driven by a desire to
have more and be rewarded with more as end unto itself which can lead to
treating people like goods. The trouble with having too many possessions is
that eventually they may own you.

Although the classical economics of Smith was
successful on overturning the unethical mercantilist system and his free market
ideas remained popular up until the 1930’s his influence soon waned. In the
period afterwards the inevitable boom and bust cycles continued in tandem with
the growth of the larger financial institutions such as banks whose occasional
lending sprees exceeded loanable funds beyond the level of maintainable
voluntary savings to cause severe social dislocations. An arrogance took hold
to disregard the lessons learnt in the past until the shock onset of the Great
Depression years in the 1930’s.

The great ethicist and economist John Maynard
Keynes

John Maynard Keynes was to present a new radically
different system to offer hope we could avoid recurrences of the painful boom
bust trade cycles. His sensible theory was we cannot rely on business as in markets
to automatically adjust to ensure full employment so long as workers remained
flexible in their demands. Rather his theory saw an active role for government
intervention with both fiscal (taxation and spending measures) and monetary
policy (control over the level of interest rates) to ensure economic growth and
stability. Banks were to be regulated but enjoy ‘Lender of last resort’ from a
reserve to ensure confidence was maintained in the system.

Hence Keynesians thought it was imperative for
government action during severe economic cycles to introduce government
spending, tax breaks and reductions in interest rates during recessions but to
reverse the situation during highly expansionary times. In other words to
increase those same levers during inflationary times.

Following the outbreak of World War II Keynes's
ideas were universally adopted throughout the western world with commensurate
success so that by the time we reached the mid-fifties all western capitalist
nations mirrored his views to share in the relatively strong, stable economic
fortunes of the immediate post war era. When I first studied economics in the
mid-sixties Keynes and Samuelson dominated our textbooks, and there was a sense
of confidence sound economics would guard against recessions. I remember student debates where we considered
the ethics of economic theory and how its implementation would benefit or
otherwise society in general.

For
Keynes was one of the first philosophical economists who insisted economic
theories must lead to fairer more ethical outcome for everyone, and one could
argue his philosophy was s mirror of the a more virtuous system first
championed by Aristotle and then Smith. Keynes' views were no doubt forged from
his desire to avoid a repeat of the great depression where he held onto his
shares and subsequently lost his fortune along with many others. His theories,
supported by extensive mathematically modelling, suggested the need for a
strong regulatory regime to prudently effectively use both monetary (supply of
money and interest rates) and fiscal policy (government spending and taxation)
to help iron out the inevitable economic imbalances. His theories were largely
adopted in Australia with some considerable success.

Keynes's influence begins to wane

As
Keynes's influence began to wane many of his sound
principles were jettisoned – particularly in relation to banking which has led
to the more recent malaise where arrogant reckless and immoral activities
became embedded into an economy whose systematic banking was destined to failure
and become a blight on society at large. The paucity in intellectual enquiry during
this period is breathtaking and I can only conclude much of it was only
possible due to the growth in “crony capitalism” such was the utter nonsense
that underpinned its erroneous applications.

The monetarists who gained ascendancy were sceptical
over the ability of governments to effectively regulate the economy with fiscal
policy as suggested by Keynes, mounting arguments his measures were both costly
and unnecessary – a boon to the naïve politician striving to appease lobbyists.
They argument was one could rely solely on
tight control of money to maintain price stability, a nonsensical concept never
capable of sustaining any modern economy anywhere. These highly simplistic theories,
were both easily understood and very appealing to politicians at a time of high
inflation but selectively seized upon by crony capitalists and vested interests
with no interest whatsoever in supporting a free market economy.

Concurrent to that change in economic focus was a
type of philosophical materialism which had taken even firmer root to assert
our wellbeing or happiness in terms of business prosperity measured solely by money.
This became linked to the fundamentalist type religions who promised future
wealth as if synonymous with salvation. Simply put -if it doesn’t make money it
doesn’t matter! A type of economic fundamentalism persuasively joined forces
with branded religion to present a rather potent cocktail of political
inspiration based upon a minimalist role for regulation, suggesting business as
in markets are sufficient as the sole arbitrator except for control over the
money supply. Undoubtedly this was simply ego driven madness on a rather grand
scale underpinning many of our current problems and the lack of a moral compass
in business today.

Modernism and the call for a return to Values Ethics in business.

The aftermath of the monetarist’s ascension to political power and
influence was the advent of the global financial crisis which has resulted in
the rallying call for a return to Values Ethics in business.

In modernity we live
in a time of intense competition but such competition has led to enmity, rather
than any attempt to build enduring expansions in value in terms of services
offered or goods delivered. This enmity has fuelled a non-virtuous approach to business
which prompts a propensity to crush small competitors and strive for
monopolistic or oligopolistic corporate existence of power for enterprises. In
other words crony capitalism; the exact opposite to the invisible market hand
of the free market where all could compete which was envisaged by Smith. In some respects in modernity, except to the
extent of limited governmental agents and regulation, this lack of an ethical
focus mirrors the practices of the unethical mercantilists. However since the
GFC there has been a groundswell of concern and anger unleashed by the public
who are fed up with crony capitalism. It is not going to be easy to change direction
considering there are currently 11,000 lobbyists resident in Washington alone.

Changing
with the times for the better.

But it is not all bad news, as the groundswell in collective consciousness
to embrace a more ethical application is gaining momentum wherever you look. All
of our big banks for instance have adopted sustainable practices to reduce the
carbon footprint which mean they only occupy the very top independently assessed
5 star energy efficient buildings and most have stopped lending to new fossil
fuel developments. Recently one supported a billion dollar plus lending
facility for new sustainable natural energy development.Paradoxically entities adopting value
ethics are usually the ones that reap the best material rewards, just as a film
which asks a relevant philosophical question or invites examination of a
moral dilemma or allows us to laugh at one another or uses satire to make us
think, will generally do better at the box office.

But we need to do more to encourage business to invest in much needed
innovation with resultant productivity improvements based on societal values
which are clearly enunciated. There needs to be a particular emphasis to
encourage new ideas as in business start-ups, with the provision of added
incentive such as providing a tax holiday for their first year of profitability
or for the period following the initial investment. This is understood by our
present PM and the early signs are very encouraging.

Conclusion

Hence advances are being made in a plethora of organisations who are now
embracing the ideas of value ethics regardless of ineffective government regulation.
In fact in many companies they are indeed miles ahead of government legislative
efforts.

Unsurprisingly these organisations perform better and are more attractive
to work in, to invest in and provide sustainable outcomes for customers and
other stakeholders.

St James Ethics Centre provides support to all organisations be they private or
public, profit or not-for-profit, to identify and address the ethical
dimension of what they do. I think it is particularly
helpful for large multinational companies to have on line counsellors from the
St James Ethics Centre to assist employees wherever they are stationed.

4 comments:

Unfortunately, too many leaders choose not to act ethically because they think they can get away with it and because the negative consequences of being unethical are often diffused, deferred and/or invisible. As you've described in your post, when ethics shifts from being a moral obligation to arising out of love, it can help us transition from avoiding doing harm to actively doing good for people. I too look forward to the day when cooperation is exchanged with conflict and general cynicism turns to wonder.

Hi Granny F True, but the irony is those few that adhere to high ethical values find the financial returns / profits simply look after themselves. I once worked for global group that gave shares to all employees simply based on their employment. Hence none were excluded and the offing’s were very generous to the extent clerks soon became very well off and worked hard and championed the entity in their local communities. They provided a facility to anyone to have free counselling through the St James ethics to ensure the highest ethical stance was taken in all countries. Guess what, the company prospered. Then it was decided to phase out the scheme as it was too expanse. Since then profits and the share price has plummeted. Best wishes

About Me

I have worked in the roles as Company Secretary or Divisional financial executive with larger Australian based multinational companies before changing careers in favour of sales and marketing for the latter 12 years of business life.
My particular interests include corporate social responsibility, ethics and research into more sustainable business practices.
I am a fellow of CPA Australia and an Associate member of the Governance Institute of Australia which was previously called the Chartered Secretaries Australia. I am chairman of the Malawi Support group who are a small group of catholic parishioners who raise funds to support a sister parish in Malawi.